Financial, Government & Corporate Corruption & Cronyism

The Creeping Cost Of Consumer Inflation; The Uncertain Emplyment Market Of Low Wage Work

The creeping cost of consumer inflation brought to you by a lower US dollar – Americans squeezed as inflation filters into the cost of daily life. The uncertain employment market of low wage work.

There are unintended consequences when policy aims at depreciating a currency in favor of bolstering an ailing banking system. The Federal Reserve has been on a multi-decade mission to lower the value of the US dollar. The primary purpose of this mission is to inflate banks into solvency as they try to work their way out of the massive financial crisis. The amount of troubled real estate loans is still impressive when we look at the temporary sanctuary being provided by the Federal Reserve on their overloaded balance sheet. This luxury is not afforded to your common household and consequently many Americans are now facing higher and higher costs in items like energy even though demand is slightly lower. This occurs for a variety of reasons but a main driver is the declining purchasing power of the US dollar. This permeates over into the employment market that is largely being driven by lower wage positions. Inflation is creeping back into the economy.

Consumer inflation now edging back up

Since our economy is fantastically debt based and debt is the medium of exchange, more debt is likely to produce higher prices given the same amount of goods. Typically this equation is leveled at the money supply but our system is one in which debt rules supreme. While households are in the painful process of deleveraging, debt has increased overall because of banking bailouts but also government spending. For this, we are seeing consumer inflation pickup:

The inflation rate has been moving up since the crisis hit a trough in 2009. Americans are facing higher prices in a variety of sectors including healthcare, energy, food, and higher education. Ironically inflation is hitting in many of the cornerstones of what was once thought to be part of a middle class lifestyle. The recent push in prices has largely come from the higher prices in energy:

Total energy costs are up 7 percent over the last 12 months while wages have gone stagnant. Gasoline has seen the largest push up in the last year moving up by 12.6 percent. Looking at food, the total cost of food has gone up by 3.9 percent over the last 12 months. Of course much of this is synergistic with the rise in energy given that food is transported and also produced with high levels of energy usage. The interesting point here is that energy usage overall has not necessarily surged in the US to justify this movement. This is largely being driven by an overall depreciation in the US dollar:

The US dollar has lost over 50 percent of its purchasing power since the 1980s. It is no coincidence that global goods like food and energy are now more expensive. This is problematic since Americans are seeing little growth in their wages. The stagnant wage dilemma has been in effect for well over a decade now.

Impact of low wage employment

Just take a look at some of the top employment sectors in our economy: